Firms tend to imitate competitors led by charismatic -- not narcissistic -- CEOs

But new research from the Penn State Smeal College of Business suggests that firms are likely to emulate competitors led by charismatic CEOs and less likely to emulate competitors led by narcissists, according to a recent study published in the Strategic Management Journal.

That study, “Follow the Leader (or Not): How Peer CEOs’ Characteristics Influence Inter-Organizational Imitation," was co-authored by Vilmos Misangyi, professor of strategic management, the BNY Mellon Fellow and the chair of the Management and Organization Department at Smeal, and Abhinav Gupta, an assistant professor of strategic management at University of Washington Foster School of Business, who obtained his doctoral degree from Smeal.

This bias toward or against a chief executive’s personality type, Gupta said, can influence strategic decision-making above and beyond the hard data on competitor performance or market opportunity.

“While prior research has shown that organizational decision makers imitate their peer firms’ actions, both for competitive benchmarking reasons and as a means of uncertainty reduction, our study shows that these decisions to emulate are influenced by the personality characteristics of the leaders of the firms being copied,” Misangyi said.

These biases, he added, are even more powerful when strategic leaders lack experience with a strategy or lead firms in volatile and uncertain industries.

“A lot of strategic choices are shots in the dark,” Gupta said. “So many firms engage in strategy benchmarking. It is the underlying process of social influence or ‘mimicry’ among organizations.”

And copycatting goes both ways. “Any given company can be an imitator and a referent at the same time,” he added.

But beyond the easily observable, Misangyi and Gupta wanted to zoom in on the psychological factors that drive strategic imitations. Sure, the performance or stature of referent firms must play a role. But what about the people who lead those firms?

Enthralling or egoistic?

Misangyi collaborated with Gupta to find out whether the perceived personality of one firm’s CEO can influence the decisions of peer firms to imitate or not.

They examined roughly half the firms in the Fortune 500 during the period from 2001 to 2012, focusing on strategic initiatives in the areas of international diversification, product market diversification and corporate social responsibility.

After establishing instances of strategic imitation, the researchers looked at two major leadership types — charismatic and narcissistic — to discern whether these personality types had any influence over a firm’s strategic choices to imitate.

Prior research has shown that people tend to view charisma as a universally positive leadership trait that is associated with inspiring high performance in an organization. Narcissism, on the other hand, is viewed as a negative leadership trait that may hinder performance.

Given these widely held views of leaders, Misangyi and Gupta examined whether these leadership types biased observers’ views of the practices enacted by the leaders. That is, were practices enacted by charismatic leaders seen as more effective and thus were imitated? Were the practices done by narcissistic CEOs seen as less effective and thus less likely to be imitated?

But how to identify the personality types of 300 blue-chip CEOs?

The researchers asked study participants to watch publicly available interviews of each leader and rate them on the extent to which they exhibit charismatic and narcissistic qualities (as identified by prior research). The raters were trained to look for the behaviors associated with the two traits to ensure that their independent ratings converged to agree upon which CEOs were charismatic and which were narcissistic.

Personality trumps performance

To isolate the effect of personality biases, Gupta and Misangyi carefully controlled for an exhaustive list of other factors: firm prestige, CEO likeability, firm size, return on assets, external environmental factors such as changes in regulations, even coincidental copycatting — anything that might motivate one firm to imitate another or cause two firms to make the same strategic decisions independently.

In this analysis of myriad potential factors driving imitation, companies tended to copy strategic decisions made by charismatic CEOs, and stay away from decisions made by narcissistic CEOs.

“Leadership, in this case, is recognized from the characteristics of the leader rather than inferred from event outcomes,” Gupta said.

He also noted that the charisma or narcissism of a referent-firm’s CEO appeared to have a greater impact on firms in highly dynamic industries where ambiguous, uncertain and volatile market conditions made it difficult for executives to discern which actions by competitors should be considered effective, important and worthy of their attention and emulation.

Firms whose leaders lacked prior experience with a type of strategic decision also tended to rely more on competitor CEO personality as a proxy for performance when benchmarking.

Bigger picture

Gupta and Misangyi suggested that the larger message of this study is that the influence of leaders extends well beyond their direct followers. The characteristics of leaders tend to unconsciously bias, even distort, observers’ perceptions and decisions. Thus, CEOs can affect their competitors’ actions, even though they had no intention to do so. For the imitating firms, this also means then that such decisions are not purely rational. Rather than being purely based on the merits of the actions themselves, the characteristics of those being copied bias imitation decisions.

A version of this article was first published by the University of Washington’s Foster School of Business.